I am afraid this is an issue where there is no solution from microsoft, I suggest one workaround because safe mode / system restore is not working, If the pc manufacturer has provided you a windows recovery disk try using that or

Bluff the OS by removing the CMOS battery and restart the PC, by doing this OS would load normally assuming there was no update as the date and time has been set to a year old (i assume).

If it works and windows load normally, then disable automating updates, remove network cable or disconnect from internet for time being, change the date and time to todays date, perform disc cleanup, remove temporary internet files, and perform a restore.

This seams to the most popular solution online. I have used it about 5 times today on different computers which failed the update.

If for some reason you don't have the startup repair option as i didn't on a couple of computers, you can boot of a windows 7 disk, go through the first section about language and keyboard etc, then select repair install on the second screen. Select the auto repair, then cancel it and you should get the advanced options which allow you to open command prompt.

Your PC might not have all 3 sections of code (<Checkpoint>, <DeleteFile>, <MoveFile>). Just make sure you delete section "Checkpoint" and whatever other sections have "000000000000000.cdf-ms". They will be right next to eachother.

Once your computer starts up, do a normal startup (it may stall for 5-10 minutes at the "starting windows" screen, but leave it going) and the Service Pack will install some more stuff and restart a few times and then everything should be working! For some people, it reverts everything and cancels the service pack installation. For other people, the service pack installation completes. Either result is fine.

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boynsAuthor Commented: 2011-03-10

thanks for everyones suggestions. This is the fix that worked for us following consultations with Microsoft -
Boot PC and Tap F8
Highlight Repair your computer, press enter
Select UK, then click on ok. click on ok again for the user
Check the top line, it should say which drive the Windows installation is installed onto. In this example it displays it as D: (amend the instructions below as necessary)
Click on Command Prompt
Type in D: press Enter
Type in ren D:\windows\winsxs\pending.xml pending.old press enter
Type in ren D:\windows\winsxs\poqexec.log poqexec.old press enter
Type in cd D:\Windows\system32\config\regback press enter
Type DIR, press enter
Check which folders are in there and date. Need to ensure that default, sam, security, system and software are there. Components might be there as well, make a note if so. Usually not though.
Type in cd .. press enter
Type in ren system system.old press enter
Repeat for sam, security, software and default (do components if folder was present before)
Type cd regback press enter
Type in copy system D:\windows\system32\config
Repeat for sam, security, software and default
Type exit
Restart PC
Log on as normal
Got to run – msconfig
Disable all non-Microsoft services from startup and services
Reboot
Install sp1 manually after downloading it - http://www.microsoft.com/downloads/en/details.aspx?familyId=c3202ce6-4056-4059-8a1b-3a9b77cdfdda&hash=hk8tc0PfTIFOyinWnVcGPbw4ZHiQqjbUIOStRi%2b%2f4sb4lN7TqjyQHQJpHWey8i5vfYG5MkTkDDJ65Sf1hWKXeg%3d%3d

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renet123Commented: 2011-03-15

Boyns: I just wanted to tell you my friend that that worked perfectly for me, I had already tried about 3 other ways and nothing. I was about ready to format the pc and go crazy having to reinstall everything and setup it as before for my client. You saved me about 4 hours worth of work. Thank you very much sir.